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XYZ Co. produces all the parts it uses to manufacture its products. The following costs per unit were incurred in manufacturing 75,000 units of Part B99: Direct materials $3.50 Direct labour 2.00 Variable overhead 1.50 Fixed overhead 6.00 A supplier has offered to sell 75,000 units of part B99 to XYZ Co. for $12 per unit. If XYZ Co. accepts the offer, fixed overhead could be reduced by 50% per unit. In addition, the facilities used to produce B99 could be used to manufacture Part C182 for which XYZ Co. has been unable to meet current demand. Sales of C182 should increase by 30%. The most recent income statement for part C182 is as follows: Sales $360,000 Variable costs 168,000 Fixed costs 120,000 Operating income 72,000 Required: a. Calculate the change in XYZ Co.'s incremental income if the supplier's offer is accepted. b. Should the supplier's offer be accepted? c. What qualitative factors should be considered?

XYZ Co. produces all the parts it uses to manufacture its products. The following costs per unit were incurred in manufacturing 75,000 units of Part B99: Direct materials $3.50 Direct labour 2.00 Variable overhead 1.50 Fixed overhead 6.00 A supplier has offered to sell 75,000 units of part B99 to XYZ Co. for $12 per unit. If XYZ Co. accepts the offer, fixed overhead could be reduced by 50% per unit. In addition, the facilities used to produce B99 could be used to manufacture Part C182 for which XYZ Co. has been unable to meet current demand. Sales of C182 should increase by 30%. The most recent income statement for part C182 is as follows: Sales $360,000 Variable costs 168,000 Fixed costs 120,000 Operating income 72,000 Required: a. Calculate the change in XYZ Co.'s incremental income if the supplier's offer is accepted. b. Should the supplier's offer be accepted? c. What qualitative factors should be considered?

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XYZ Co. produces all the parts it uses to manufacture its products. The following costs per unit were incurred in manufacturing 75,000 units of Part B99: Direct materials $3.50 Direct labour 2.00 Variable overhead 1.50 Fixed overhead 6.00 A supplier has offered to sell 75, 000 units of part B99 to XYZ Co. for $12 per unit. If XYZ Co. accepts the offer, fixed overhead could be reduced by 50% per unit. In addition, the facilities used to produce B99 could be used to manufacture Part C182 for which XYZ Co. has been unable to meet current demand. Sales of C182 should increase by 30%. The most recent income statement for part C182 is as follows: Sales $360,000 Variable costs 168,000 Fixed costs 120,000 Operating income 72,000 Required: a. Calculate the change in XYZ Co.'s incremental income if the supplier's offer is accepted. b. Should the supplier's offer be accepted? c. What qualitative factors should be considered?
Transcribed Image Text:XYZ Co. produces all the parts it uses to manufacture its products. The following costs per unit were incurred in manufacturing 75,000 units of Part B99: Direct materials $3.50 Direct labour 2.00 Variable overhead 1.50 Fixed overhead 6.00 A supplier has offered to sell 75, 000 units of part B99 to XYZ Co. for $12 per unit. If XYZ Co. accepts the offer, fixed overhead could be reduced by 50% per unit. In addition, the facilities used to produce B99 could be used to manufacture Part C182 for which XYZ Co. has been unable to meet current demand. Sales of C182 should increase by 30%. The most recent income statement for part C182 is as follows: Sales $360,000 Variable costs 168,000 Fixed costs 120,000 Operating income 72,000 Required: a. Calculate the change in XYZ Co.'s incremental income if the supplier's offer is accepted. b. Should the supplier's offer be accepted? c. What qualitative factors should be considered?
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